It’s a very simple equation. The higher your credit score, the better interest rate you will receive as a borrower. The reasoning behind the equation is
equally simple – your interest rate not only reflects current market conditions but also your estimated ability to pay back the loan. To a lender, the latter is worth its weight in gold.
Components of a Credit Score
Generally speaking, your credit score is based upon the following criteria in order of importance:
- Payment history (this is where delinquencies will hurt you).
- Responsibility regarding credit usage (how maxed out are your accounts).
- Credit age (how long have you had your credit accounts).
- Number of credit inquiry requests.
- Credit diversity.
These quantifiable aspects, once accumulated, typically result in a number between 350 and 850. The bottom line is the higher the number, the more likely you are to pay back the loan.
A Closer Look at the Players Involved
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